CBSE Class 12 Accountancy Company Accounts Share Capital Assignment

LEARNING OBJECTIVES

Understand the meaning and features of company

I) Classification of share capital

II) Understand the accounting treatment of over subscription, calls in arrears, premium and discount on issue of shares.

III) Understand the meaning of forfeiture of shares

IV) Pass journal entries regarding forfeiture and reissue of shares

V) Calculate capital reserve

VI) Differentiate between capital reserve and reserve capital

VII)Understand the disclosure of the share capital in the balance sheet

(1 marks)

Q.1 Give the definition of a compnay as contained in the companies act,1956.

Ans section 3(1)(i) of companies act defines a company as "a company formed and registered under this act or an existing company." According to sec3(1)(ii),"An exisiting company means a company formed and registered under any of the former companies Acts."

Q.2 Can forfeited shares be issued at a discount ? If so to what extent?

Ans Re-issue of forfeited shares: Forfeited shares can be reissued at a discount. However, the In other words, amount received on received on re-issue plus amount already received on forfeited shares must not be less than the paid up value of shares.

Q.3 As a director of a company you had invited applications for 20,000 equity shares of Rs.10 each at a premium of Rs.2 each. The total applications money received at Rs.3/- per share was Rs.72,000. Name the kind of subscription. List the three alternatives for allotting these share.

Ans It is a case of over-subscription. Shares are said to be over-subscribed when the numbers of shares ar more than the number of shares offered:

       (i) Allotment for 1st 20,000 shares and the rest can rejected

       (ii) Allotment on prorata basis

       (iii)Allotment of some application in full and some on prorata basis,and some refused.

Q.4 What is an Escrow Account?

Ans. In order to fulfill certain obligations under the scheme of buy-back of securities an account is opened, which is known as escrow account.

Q.5 What do you mean by Private placement of shares?

Ans. Private Placement of shares implies issue and allotment of shares to a selected groups of persons privately and not to public in general through public issue. In order to place the shares privately, a company must pass a special resolution to this effect.

Q.6 What is Sweat Equity?

Ans. Sweat Equity shares means easily shares issued by the company to its employees or whole time directors at a discount or for consideration other then cash for providing know - how or making available right in the nature of intellectual properly rights or valve addition by whatever name called.

Q.7 What maximum amount of discount can be allowed on the reissue of forfeited shares?

Ans. The maximum amount of discount on reissue of forfeited shares is that the amount of discount allowed cannot exceed the amount that had been received on forfeited shares on their original issue and that the discount allowed on re issue of forfeited shares should be debited to the share forfeited account.

Q.8 State in brief, the SEBI Guidelines regarding Debenture Redemption Reserve.

Ans. At per SEBI Guidelines, an amount equal to 50% of the debenture issue must be transferred to DRR before the redemption begins. In other words, before redemption, at least an amount equal to 50% of the debenture issue must stand to the credit of DRR

Q.9 Name the head under which discount on issue of debentures appears in the Balance Sheet of "C" Company.

Ans. Discount on issue of debentures will appear under the heading Miscellaneous Expenditure.  

Q.10 Can a company issue share of discount ? What conditions must a company comply with before the issue of such shares.

Ans. Section 79 of the companies Act, 1956 permits a company to issue shares at a discount only if the following conditions are fulfilled :

        1) The shares are of a class already issued.

        2) At least one year must have elapsed since the company become entitled to commence business.

        3) The issue of shares at discount is authorised by a revolution passed by the company in its general meeting and sanctioned by the central Government. The resolution specifies the maximum rate of discount at which the shares are to be issued. The rate must not exceed 10% unless sanctioned by the central Government.

Important Concepts

1. A share is one of a finite number of portions in the capital of a company.

2. The person who subscribes in shares is called a share holder.

3. Dividend is the profit which the company distributes to the share holders at the end of the financial year.

4. Nominal Value (N.V) or face value (F.V) is the original value of the share.

5. Market Value (M.V) is the price at which the share is quoted in the market.

6. If the market value of a share is the same as its nominal value, the share is said to be at par.

7. A share is said to be above par or at premium, if its market value is more than its face value.

8. A share is said to be below par or at a discount, if its market value is less than its face value.

9. The profit, which a share-holder gets from his investment in the company is called dividend.

10. The dividend is always calculated on the face value and not on the market value.

11. The dividend is expressed as a percentage of the nominal value of the share.

12. The shares are generally of two types:
i. Preferred shares
ii. Common or ordinary shares

Important Formulae’s

1. Investment= Number of shares x Market Value of 1 share

2. Number of shares bought = Sum invested/M.V of 1 share

3. Number of shares bought = Total dividend/Dividend on 1 share

4. Number of shares bought = Total Income/Income on 1 share

5. Income = Number of shares × rate of dividend × F.V

6. F.V. = Face-value=Nominal-value=N.V.

7. Return %=Income Profit %

Question. Reserve share capital means :
(a) Part of authorised capital to be called at the beginning
(b) Portion of uncalled capital to be called only at liquidation
(c) Over subscribed capital
(d) Under subscribed capital
Answer: (b) Portion of uncalled capital to be called only at liquidation

Question. When full amount is due on any call but it is not received, then the short fall is debited to :
(a) Calls-in-advance
(b) Calls-in-arrear
(c) Share Capital
(d) Suspense Account
Answer: (b) Calls-in-arrear

Question. The difference between subscribed capital and called up capital is called :
(a) Calls-in-arear
(b) Calls-in-advance
(c) Uncalled capital
(d) None of these
Answer: (c) Uncalled capital

Question. Which statement is issued before the issue of shares ?
(a) Prospectus
(b) Articles of Association
(c) Memorandum of Association
(d) All of these
Answer: (d) All of these

Question. Company can utilise securities premium for :
(a) Writing off loss incurred on revaluation of asset
(b) Issuing fully paid bonus shares
(c) Paying divided
(d) Writing off trading loss
Answer: (b) Issuing fully paid bonus shares

Question. When a company issues fully paid shares to promoters for their services, the journal entry will be:
(a) Bank A/c Dr.
To Share Capital A/c
(b) Goodwill A/c Dr.
To Share Capital A/c
(c) Promoters Personal A/c Dr.
To Share Capital A/c
(d) Promotion Expenses A/c Dr.
To Share Capital A/c
Answer: (b) Goodwill A/c Dr. To Share Capital A/c

Question. When a company issues shares at a premium, amount of premium may be received by the company :
(a) Along with application money
(b) Along with application money
(c) Along with calls
(d) Along with any of the above
Answer: (d) Along with any of the above

Question. Share Application Account is :
(a) Personal Account
(b) Real Account
(c) Nominal/ Account
(d) None of these
Answer: (a) Personal Account

Question. Securities Premium can not be applied :
(a) For paying dividend to members
(b) For issuing bonus shares to members
(c) For writing off preliminary expenses of company
(d) For writing off discount on issue of debentures
Answer: (a) For paying dividend to members

Question. A joint stock company is :
(a) An artificial legal person
(b) Natural person
(c) A general person
(d) None of these
Answer: (a) An artificial legal person

Question. Equity shareholders are :
(a) Customers
(b) Creditors
(c) Debtors
(d) Owners
Answer: (d) Owners

Question. Reserve capital means :
(a) A part of subscribed uncalled capital
(b) Reserve Profit
(c) A part of Capital Reserve
(d) A part of Capital Redemption Reserve
Answer: (a) A part of subscribed uncalled capital

Question. Securities Premium is shown under which head in the Balance Sheet ?
(a) Reserve and Surplus
(b) Miscellaneous Expenditure
(c) Current Liabilities
(d) Share Capital
Answer: (a) Reserve and Surplus

Question. Shares may be issued :
(a) At par value
(b) At Premium
(c) At Discount
(d) Both (a) & (b)
Answer: (d) Both (a) & (b)

Question. Capital included in the liabilities of a company is called :
(a) Authorised Capital
(b) Issued Capital
(c) Subscribed Capital
(d) Paid-up Capital
Answer: (d) Paid-up Capital

Question. An issue of shares which is not a public issue but offered to a selected group of persons is called :
(a) Public offer
(b) Private placement of shares
(c) Initial public offer
(d) None of these
Answer: (d) None of these

Question. If a share of ₹ 10 on which ₹ 8 has been called and ₹ 6 is paid is forfeited, the Share Capital Account should be debited with :
(a) ₹ 8
(b) ₹ 10
(c) ₹ 6
(d) ₹ 2
Answer: (a) ₹ 8

Question. When shares are forfeited, the Share Capital Account is debited with:
(a) Nominal value of Shares
(b) Market value of Shares
(c) Called-up value of Shares
(d) Paid-up value of Shares
Answer: (c) Called-up value of Shares

Question. If the loss on reissue of shares is less than the amount forfeited, the ‘surplus’ or profit is transferred to :
(a) Capital Reserve
(b) Revenue Reserve
(c) Profit & Loss A/c
(d) None of these
Answer: (a) Capital Reserve

Question. J. Ltd. re-issue 2,000 shares which where forfeited by crediting share forfeiture account by ₹ 3,000. These shares were re-issued at ₹ 9 per share. The amount transferred to capital reserve will be :
(a) ₹ 3,000
(b) ₹ 2,000
(c) ₹ 1000
(d) Nil
Answer: (c) ₹ 1000

Question. If a share of ₹ 10 on which ₹ 8 has been paid up is forfeited, it can be reissued at the minimum price of…….
(a) 10 Rs. per share
(b) 8 Rs. per share
(c) 5 Rs. per share
(d) 2 Rs. per share
Answer: (d) 2 Rs. per share

Question. Z & Co. forfeited 100 shares of 10 Rs. each for non-payment of final call of 2 Rs. per share. All the forfeited shares were re-issued at 9 Rs. per share. What amount will be transferred to Capital Reserve A/c ?
(a) 700 Rs.
(b) 800 Rs.
(c) 900 Rs.
(d) 1,000 Rs.
Answer: (a) 700 Rs.

Question. Forfeiture of shares results in the reduction of:
(a) Paid-up Capital
(b) Authorised Capital
(c) Fixed Assets
(d) Reserve Capital
Answer: (a) Paid-up Capital

Question. Amount of calls in Arrear is :
(a) Added to capital
(b) Deducted from share capital
(c) Shown on the assets side
(d) Shown on the equity and liability side
Answer: (b) Deducted from share capital

Question. Discount allowed on reissue of forfeited shares is debited to:
(a) Share Capital A/c
(b) Share Forfeiture A/c
(c) Profit & Loss A/c
(d) General Reserve A/c
Answer: (b) Share Forfeiture A/c

Question. A company has…………
(a) Separate Legal Entity
(b) Perpetual Existence
(c) Limited Liability
(d) All the above
Answer: (d) All the above

Question. The liability of members in a company is :
(a) Limited
(b) Unlimited
(c) Stable
(d) Fluctuating
Answer: (a) Limited

Question. Equity shareholders are :
(a) Creditors of the company
(b) Owners of the company
(c) Customers of the company
(d) None of these
Answer: (b) Owners of the company

Question. Balance of Forfeited Shares Account after reissue of forfeited shares is transferred to :
(a) Profit & Loss A/c
(b) Capital Reserve Account
(c) General Reserve Account
(d) None of these
Answer: (b) Capital Reserve Account

Question. Under the provisions of Companies Act, company can issue:
(a) Only equity shares
(b) Only preference shares
(c) Preference shares and equity shares
(d) None of these
Answer: (c) Preference shares and equity shares

Question. Reight shares are the shares, which :
(a) Are issued to the Direction of the company
(b) Are issued to existing shareholders of the company
(c) Are issued to promoters in consideration of their services
(d) Are issued to the vendors for purchasing assets
Answer: (b) Are issued to existing shareholders of the company

Question. Total amount of liabilities side includes :
(a) Authorised Capital
(b) Issued Capital
(c) Subscribed Capital
(d) Paid-up Capital
Answer: (d) Paid-up Capital

Question. A company issues its shares at premium under which Section of Indian Companies Act, 2013 ?
(a) 78
(b) 79
(c) 52
(d) 53
Answer: (c) 52

Question. Shares can be forfeited :
(a) For failure to attend meetings
(b) For non-payment of call money
(c) For failure to repay the loan to the Bank
(d) For which shares are pledged as a security
Answer: (b) For non-payment of call money

Question. Shareholders get:
(a) Interest
(b) Dividend
(c) Commission
(d) Profit
Answer: (b) Dividend

Question. According to Table E of the Companies Act, 2013 interest on calls in arrears charged should not exceed :
(a) 5% p.a.
(b) 6% p.a.
(c) 8% p.a.
(d) 10%p.a.
Answer: (d) 10%p.a.

Question. Premium on issue of shares is a :
(a) Capital Gain
(b) Capital Loss
(c) General Profit
(d) General Loss
Answer: (a) Capital Gain

Question. Premium on issue of shares is shown on which side of the Balance sheet.
(a) Assets
(b) Liabilities
(c) Both
(d) None of these
Answer: (b) Liabilities

Question. Share Allotment Account is :
(a) Personal A/c
(b) Real A/c
(c) Nominal A/c
(d) None of these
Answer: (a) Personal A/c

Question. The portion of the authorised capital which can be called-up only on the liquidation of the company is called:
(a) Issued Capital
(b) Called-up Capital
(c) Uncalled Capital
(d) Reserve Capital
Answer: (d) Reserve Capital

Question. Premium on issue of shares can be used for :
(a) Issue of Bonus shares
(b) Distribution of Profit
(c) Transferring to General Reserve
(d) All these
Answer: (a) Issue of Bonus shares

Question. If equity share of ₹ 10 Rs. each is issued at ₹ 12 each, it is called:
(a) Issued at Par
(b) Issued at Premium
(c) Issued at Discount
(d) None of these
Answer: (b) Issued at Premium

Question. The maximum capital beyond which a company is not allowed to raise funds, by issue of shares is called …………..
(a) Issued capital
(b) Reserve capital
(c) Authorised capital
(d) Subscribed capital
Answer: (b) Reserve capital

Question. As per Table F the maximum rate of interest on calls in advance paid is:
(a) 8% p.a.
(b) 12% p.a.
(c) 5 % p.a.
(d) None of these
Answer: (b) 12% p.a.

Question. As per the Companies Act, only preference shares, which are redeemable within …………. can be issued.
(a) 24 years
(b) 22 years
(c) 30 years
(d) 20 years
Answer: (d) 20 years

Question. Which one of the following is the registered capital of the company ?
(a) Paid-up capital
(b) Uncalled capital
(c) Authorised capital
(d) Issued capital
Answer: (c) Authorised capital

Question. Dividends are usually paid on :
(a) Authorised Capital
(b) Issued Capital
(c) Called-up Capital
(d) Paid-up Capital
Answer: (d) Paid-up Capital

Question. If vendors are issued fully paid shares of ₹ 1,00,000 in consideration of net assets of ₹ 1,20,000 the balance of ₹ 20,000 will be credited to :
(a) Goodwill Account
(b) Capital Reserve Account
(c) Vendor’s Account
(d) Profit & Loss Account
Answer: (b) Capital Reserve Account

Question. Which account should be debited when shows an issued to promoters:
(a) Share Capital A/c
(b) Assets A/c
(c) Promoter’s A/c
(d) Goodwill A/c
Answer: (d) Goodwill A/c

Question. According to Section 52 of the Compaines Act, the amount in the Securities Premium Account cannot be used for the purpose of:
(a) Issue of fully Paid Bonus Shares
(b) Writing Off Losses of the Company
(c) Writing off Preliminary Expenses
(d) Writing Off Commission or Discount on Issue of Shares
Answer: (b) Writing Off Losses of the Company

Question. 10,000 equity shares of 10 Rs. each were issued to public at a premium of ₹ 2 per share payable on allotment. Applications were received for ₹ 12,000 shares. Amount of securities premium account will be :
(a) ₹ 20,000
(b) ₹ 24,000
(c) ₹ 4,000
(d) ₹ 1,600
Answer: (a) ₹ 20,000

Question. A Ltd. purchased a machinery for 1,80,000Rs. for which it is paying by issue of shares of 100 Rs. each at 20% premium. How many shares will be issued as consideration. ?
(a) 2,500
(b) 2,000
(c) 1,500
(d) 3,000
Answer: (c) 1,500

Question. Right Shares are issued to :
(a) Promoters for the Services
(b) Holders of Convertible Debentures
(c) Existing Shareholders
(d) All of the above
Answer: (c) Existing Shareholders

Question. A company is registered with a share capital of ₹ 1,00,000Rs. divided into ₹ 10,000 shares of ₹ 10 each. Of these shares 9,990 shares are held by Rajeev and 10 Shares are held by Sanjay. In the eye of law it is treated as:
(a) Partnership
(b) Private Company
(c) Public Compancy
(d) Government Company
Answer: (b) Private Company

Question. Which of the following should be deducted from the called-up capital to find out paid up capital:
(a) Calls-in-advance
(b) Calls-in-arrear
(c) Share forfeiture
(d) Discount on issue of shares
Answer: (b) Calls-in-arrear

Please refer to attached file for CBSE Class 12 Accountancy Company Accounts Share Capital Assignment